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TMI Blog2005 (1) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... of Revenue to license and regulate the use and possession of the aforestated preparations vide notifications/communications no. 2/23-3-88/1, 2/23-3-88/2, and 2/23-3-88/3 all dated 3rd August, 1988. 3.The main ground of challenge before the High Court was that the State Legislature had no competence to levy duty on the manufacture of medicinal and toilet preparations containing alcohol under the Bihar Act, 1915 after enactment of the Medicinal & Toilet Preparations (Excise Duties) Act, 1955 (hereinafter referred to for the sake of brevity as "the Medicinal Act, 1955"), which Act is relatable to Entry 84 List-I of the Seventh Schedule to the Constitution and consequently, the State Government and the Board of Revenue had no authority to license and regulate manufacture of such preparations. Reliance was also placed on the provisions of the Drugs & Cosmetics Act, 1940 (hereinafter referred to for the sake of brevity as "the Drugs Act, 1940") enacted to regulate import, manufacture, distribution and sale of drugs. It was the case of the manufacturers that the Bihar Act, 1915, as amended, was repugnant to the provisions of the Drugs Act, 1940. In short, according to the manufacturers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislative competence is raised, the matter has to be examined applying the doctrine of pith and substance, as repeatedly stated by this Court. Learned senior counsel submitted that incidental trenching upon the field reserved for the Union cannot be characterized as travelling beyond the assigned field. He submitted that the Amending Act No. 6 of 1985 by which medicinal and toilet preparation containing alcohol is brought within section 2(12a) of the Bihar Act, 1915, did not impinge upon the Medicinal Act, 1955 nor upon the Drugs Act, 1940, because by the said Amending Act No. 6 of 1985, the State Legislature has sought to license and regulate the use, possession and consumption of medicinal preparation within the State as alcoholic beverage. Learned senior counsel further submitted that under the impugned notifications, the State as well as the Board of Revenue is seeking to regulate and control the use of Ayurvedic preparations containing alcohol for which license is required to be obtained by the manufacturers on payment of fees and consequently, such a fee is regulatory in nature and cannot violate Article 301 of the Constitution. Learned senior counsel further submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-I of the Seventh Schedule to the Constitution. Learned counsel laid stress on clauses (1), (2) & (3) of Article 246 and submitted that the power of the State Legislature to make a law with reference to matters in List-II vide Article 246(3) is subject to Parliament's power under Article 246(1) and Article 246(2). Learned counsel contended that once the Parliament enacted the Medicinal Act, 1955 and included therein the power in the Central Government to license and regulate manufacture of medicinal and toilet preparations, the Parliament must be deemed to have expressed its intention to occupy the entire field of Entry 84 List-I. If so, the State Legislature has no power to make any law with respect to manufacture of medicinal and toilet preparations after coming into force of the said 1955 Act. Learned counsel further submitted that the entire exercise of bringing in medicinal and toilet preparations within the ambit of section 2(12a) of the said 1915 Act was to change the source of power. He submitted that after enactment of the 1955 Act, referable to Entry 84 List-I, the State Legislature was denuded of its legislative power to enact a law regulating preparation and manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquids containing alcohol and any other substance which the State Government may by notification declare to be liquor. Section 2(15) defines the word "manufacture" to include every process by which any intoxicant is produced or prepared and every process for rectification, blending or colouring. In other words, the word "manufacture" is defined to mean such transformation that brings about a new and different article with a distinctive name and character for use. Section 2(19) defines the word "spirit" to mean any liquor containing alcohol obtained by the distillation. Under section 5, the Board of Revenue is empowered to declare by issuing notification the limits of a retail sale of any intoxicant. Chapter III deals with import, export and transport of intoxicants. Chapter IV deals with manufacture, possession and sale of intoxicants. Under section 13(a), no intoxicant shall be manufactured except under the authority and subject to the terms and the conditions of the license granted by the Collector. Section 18 provides inter alia that no person shall possess any intoxicant which has not been obtained from a licensed vendor. Under section 19(1), no person not being licensed to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State Government to make rules to carry out the object of the Bihar Act. Section 89(2) empowers the State Government to make rules for regulating the import, export or transport of any intoxicant. It also empowers the State Government under section 89(2)(f) to make rules prohibiting grant of licenses for retail sale of any intoxicant, at any place or within any local area. Section 90 empowers the Board of Revenue to make rules to regulate the manufacture, supply or storage of any intoxicant. Under section 90(7), the Board is empowered to make rules prescribing fees in respect of any privilege granted under section 22 or in respect of issuance of any license, permit or pass granted under the Act. Under section 90(9), the Board is empowered to make rules prescribing the restrictions under which license or permit may be granted, prohibiting the admixture with any intoxicant. It also empowers the Board of Revenue to prohibit the quantity of liquor by a licensed manufacturer in the preparation of the intoxicants. It also empowers the Board to regulate the transfer of license on payment of fees. Similarly, under section 90 of the Bihar Act, 1915, the Board has framed Rules, known as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dutiable goods manufactured in India. It also lays down the mode of collection of said duties. Section 6 prohibits any person from engaging in the production or manufacture of any dutiable goods, without authority and without license granted in the Act. Section 19 empowers the Central Government to make rules to carry out the purposes of the Act. Under section 19(1), the Central Government has framed the Central Rules which deal with manufacture and production of medicinal preparations, with the ultimate object of providing a machinery for collection of duty on the preparations. Rule 18 of the Rules provides that the rectified spirit shall be supplied to a manufacturer from a distillery of the State. Rule 21 provides that rectified spirit shall be issued for manufacture of medicinal preparations containing alcohol. Rule 33 provides for taking of sample of the manufactured product for analysis to determine the strength of the alcohol. These rules are intended to carry out the object of the Medicinal Act, 1955 i.e. to levy and collect duties of excise on medicinal and toilet preparations containing alcohol. 12.On reading the scheme of the Medicinal Act, 1955, referable to Entry 84 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... medicines, specified in the First Schedule. Section 3(b) defines "a drug" to include all medicines and all substances intended to be used for diagnosis, treatment, mitigation or prevention of any disease. Chapter-III deals with import of drugs. Chapter IVA makes provisions relating to Ayurvedic and Unani drugs. Sections 33E, 33EE and 33EEA refer to Ayurvedic and Unani drugs which shall be deemed to be misbranded, adulterated and spurious respectively. Under section 33EEB, no person shall manufacture for sale or distribution any Ayurvedic or Unani drugs except in accordance with the prescribed standards. Section 33EEC prohibits manufacture and sale of certain Ayurvedic and Unani drugs. Section 33-I imposes penalty for manufacture, sale or distribution of any Ayurvedic or Unani drug in contravention of Chapter IVA. Rule 153 of the Drugs & Cosmetics Rules, 1945 deals with application for license to manufacture for sale any Ayurvedic or Unani drugs. Rule 158 provides for conditions of license for manufacture for sale of such drugs. In the Rules, so far as Ayurvedic and Unani drugs are concerned, there is no provision for licensing of use and possession of Ayurvedic drugs as under the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als, namely, whether the State Legislature was competent to include medicinal and toilet preparations containing alcohol governed by the provisions of Medicinal Act, 1955 into the definition of the word "intoxicant" in section 2 (12a) of the Bihar Act, 1915, as amended by Act No. 6 of 1985. 17.Part XI of the Constitution deals with relations between the Union and the States. Chapter-I in this part bears the heading "Legislative Relations : Distribution of Legislative Powers." Clause (1) of Article 245 declares that "subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State." Clause (1) of Article 246 declares that "notwithstanding anything contained in Clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List-I in the Seventh Schedule (in this Constitution referred to as the 'Union List'). Clause (2) of Article 246 declares that "notwithstanding anything in Clause (3), Parliament and, subject to Clause (1), the Legislature of any State also have power to make laws ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sanjivani Sura and Mritsanjivani Sudha were mentioned in the Schedule annexed to the Medicinal & Toilet Preparations (Excise Duties) Rules, 1956. Placing reliance on the affidavit of the Chemical Examiner, this Court found that the aforestated two preparations contained 42 per centum of alcohol. This Court further found that the aforestated preparations were medicinal preparations, however, they were also capable of being used as ordinary alcoholic beverages. At this stage, it may be mentioned that after 1960, the aforestated preparations have been omitted from the Schedule. On consideration of the entire matter this Court came to the conclusion that since the aforestated two preparations were medicinal preparations under the said Medicinal Act, 1955, the Central Government was entitled to impose excise duty on their manufacture. The important point to be noted is that the said judgment did not deal with use and possession of the aforestated two substances. As stated above, both the substances were capable of being used as alcoholic beverages. The only question before this Court was with regard to levy of excise duty on these two substances under the said 1955 Act. The said judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The question which arose before this Court was whether after coming into force of the Medicinal & Toilet Preparations (Excise Duties) Act, the rules framed under the Hyderabad Abkari Act can be said to survive. It was held that before the Constitution came into force the Hyderabad Abkari Act was a general Act. However, under the Constitution, the Medicinal & Toilet Preparations Act came under Entry 84 List-I which provides for duty of excise on medicinal and toilet preparations containing alcohol and therefore no charge could be levied on the manufacture of medicinal preparation except by the Central Government in the shape of duty in Entry 84 List-I. It was further held that as long as the Centre did not enact the Medicinal & Toilet Preparations Act, 1955, the State was entitled to charge duty under Article 277 of the Constitution. However, with the coming into force of Medicinal & Toilet Preparations Act, on and from 1-4-1957, the State could not levy any charge or duty on manufacture of medicinal preparation containing alcohol. This judgment on which heavy reliance is placed by the respondent Nos.1 and 2 has no application to the present case. In the present case, we are concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lature was competent to levy duty on the outcome of the molasses. Following the judgment of this Court in Synthetics and Chemicals Ltd. v. State of U.P., reported in [(1990) 1 SCC 109], this Court held that the State Legislature was not entitled to levy excise duty on rectified spirit or industrial alcohol useable for industrial purposes. However, it was clarified that if any rectified spirit was diverted or used for manufacturing potable liquors, the State was empowered to impose duty if it found that rectified spirit was being removed from the distillery for the purposes of manufacturing potable liquor. In coming to the said conclusion, this Court placed reliance on the definition of the word 'intoxicant' under section 2(12a); the word 'liquor' in section 2(14) and also the word 'spirit' in section 2(19) of the Bihar Act, 1915. On construction of these three words this Court held that the total effect of the definition 'intoxicant' read with the words 'liquor' and 'spirit' meant that the substance used for human consumption can be subjected to duty by the State. However, duty cannot be imposed by the State on manufacture of industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacture of Ayurvedic medicines containing alcohol. However, when the Ayurvedic preparation is diverted to human consumption the State shall have the power to regulate and control such use which has been done in the present case by amending Act No. 6 of 1985, which is a law relatable to Entry 8 read with Entry 6 of List-II. 24.In American Jurisprudence Volume-30, it is stated that in the matter of liquor traffic the power of control by the State is an incident of the society's right to self protection. It rests upon the right of the State to care for the health, moral and welfare of the people. This is the very purpose behind Entry 6 of List-II in the Seventh Schedule of the Constitution. In the case of Har Shankar & Others v. Deputy Excise & Taxation Commissioner & Others, reported in [(1975) 1 SCC 737], this Court observed that the State under its regulatory powers has a right to prohibit absolutely every form of activity in relation to intoxicants - its manufacture, storage, export, import, transport, sale and possession. Applying the above tests, it is clear that the Bihar Act is relatable to Entry 8 read with Entry 6 of List-II in the Seventh Schedule to the Constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erage can become the subject matter of regulation and control by the State. It is the subject of the Bihar Act, 1915. Hence, the State Act is relatable to Entry 8 read with Entry 6 of List-II. The State law operates in a different field vis-a-vis Medicinal Act, 1955 which is relatable to Entry 84 List-I. We have examined the scheme of the two Acts. Medicinal Act, 1955 levies excise duty on the manufacture of medicinal and toilet preparations. The said 1955 Act is a taxing statute. Entry 84 List-I is an entry which deals with taxing power. On the other hand, Entry 8 read with Entry 6 of List-II refers to general subject of legislation. It refers to regulation and control of substances in public interest. The Act is enacted in public interest to secure good health for the citizens. Therefore, the two Acts are in different spheres. There is no trenching even incidentally by the Bihar Rules and the impugned notifications into the provisions of the Medicinal Act, 1955 read with the Rules. It is well settled that even if at all there is any trenching or incidental encroachment such encroachment will not affect the competence of the Legislature to enact the law nor will it affect its vali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, by enactment of Medicinal Act, 1955 by Parliament under Entry 84 List-I of the Seventh Schedule of the Constitution or by the framing of rules by the Central Government thereunder for recovery of excise duty on manufacture of medicinal and toilet preparations containing alcohol, a State Legislature is not prevented from making a law under Entry 8 List-II with respect to intoxicating liquor or a law under Entry 51 List-II levying excise duties on alcoholic liquors for human consumption. In that case it was held that the Abkari Act of Kerala is relatable to the State's power to make a law under Entry 8 and Entry 51 List-II of the Seventh Schedule to the Constitution. There is a difference between the word "on" and the expression "with respect to". When we refer to levy on excise duty under Entry 84 List-I, we emphasize the word "on". On the other hand, when we refer to Entry 8 List-II, which is a general entry, relating to "intoxicating liquor", we refer to a wider activity. The words "in respect of" or the words "with respect to" used in the aforestated judgment in the context of Entry 8 List-II bring out the above difference. Entry 8 List-II is an entry on general subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the levy was set apart for the performance of some work. The High Court observed there was nothing to show that the fee had not merged in the public revenue and therefore the State of Bihar was not entitled to charge any amount in the form of fees or fixed payment. According to the High Court, the State in the garb of fees or fixed payment was trying to impose tax/excise duty which could not be done as the State was not competent to levy excise duty on medicinal and toilet preparations which are already subjected to duty under the provisions of 1955 Act. According to the High Court the same products cannot be subjected to double taxation. The reasoning of the High Court is erroneous. As held hereinabove, the State was competent to enact a law in respect of use and possession of Ayurvedic preparations containing alcohol as alcoholic beverages. As a part of regulation and control of such activity, the State was entitled to call upon the manufacturers to obtain a license on payment of fees. The State has to incur expenses incidental to regulation and control of such activities. Hence, the fee leviable and payable by the manufacturers under the impugned notification is in the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Ambika Mills Ltd., Ahmedabad & Another, reported in [(1974) 4 SCC 656], Mathew, J. speaking for the Court pointed out that classification is inherent in legislation. Article 14 does not require that every regulatory statute should apply to all in the same business: where size is an index, discriminations between large and small are permissible, and it is also permissible for reform to take one step at a time. In the case of Municipal Corporation of the City of Ahmedabad & Others v. Jan Mohammed Usmanbhai & Another, reported in [(1986) 3 SCC 20], this Court held that while Article 14 forbids class legislation it does not forbid reasonable classification for the purposes of legislation and that in order to pass the test of permissible classification two conditions must be fulfilled, namely, the classification must be founded on an intelligible differentia which distinguishes persons or class that are grouped together from other left out of the group and secondly such differentia must have rational relation to the object sought to be achieved by the statute in question. It must be borne in mind that the legislature is free to recognize degrees of harm and may confine its restrictio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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